Freetail Brewing

A dispute over deposit fees for kegged beers could slow the flow of several craft brands, including a few that are made locally, at some of Houston’s best-known bars.

The issue boiled over this week when Silver Eagle Distributors instituted an unannounced 20 percent hike in the deposit it charges retailers when they purchase kegs filled with beer, local proprietors said.

Two said they will stop purchasing kegged beer from Silver Eagle, at least temporarily. Affected brands include Houston’s Saint Arnold, Karbach and 8th Wonder, and such national brands as Firestone-Walker and Sierra Nevada. Because of state laws governing how beer is sold in Texas, no other wholesalers are allowed to carry those beers in Houston.

“It’s a really hard decision,” said Kevin Floyd of the Montrose craft beer bar Hay Merchant, referring to the decision to not have the local beers on tap.

But he said the $10-per-keg increase, to $60, double what it was just a few years ago, has prompted him and other bar owners to act.

Although the deposit technically is refunded when a keg is returned to the distributor, the retailer typically doesn’t see the money because the credit is immediately applied to the next keg. Depending on the size of the bar, the deposits could tie up thousands of dollars.

“That’s money that’s just caught up,” said Ben Fullelove, owner of the Petrol Station in the Garden Oaks/Oak Forest area. “You’re not going to see that money again unless you close down.”

Fullelove, who usually has 70 to 100 kegs on hand from various distributors, said he will be out of those supplied by Silver Eagle by the end of the weekend and does not intend to purchase more unless the deposit hike is rescinded. He said he wants to support local breweries as well as the national brands his bar is known for carrying. But he, too, cited the steep increases over the last six years and said enough is enough.

“How does it end?” he said. “Suddenly I’m paying $100 a keg? $200 a keg after a year?”

In an emailed statement attributed to John Johnson, executive vice president of sales and marketing, Silver Eagle Distributors cited increases in the deposit fees it has to pay when it receives the kegs.

“These deposit fees are a standard operating procedure in the industry and from time to time are increased by suppliers, resulting in an increase by distributors,” the statement read. “As a result, Silver Eagle recently increased the amount of its refundable keg deposit.”

Hope this doesn’t ruin anyone’s dinner plans. For a perspective from one of the microbreweries affected by this, read what Scott Metzger of Freetail Brewing has to say. From my perspective, this just highlights another flaw in Texas’ byzantine tiered distributorship model for wholesale beer sales. In a sane world, there would be more than one way to get their beer from the breweries to the retailers. Microbreweries won some freedoms from the Legislature two years ago, but they still don’t operate in anything resembling a free market. This is just one illustration of that.

Whatever you think of the vetoes or the special session action, this is unequivocally good news.

Happy hour started Friday afternoon for Texas brewers.

Gov. Rick Perry signed five bills representing the most comprehensive overhaul in two decades of how beer is packaged and sold across the state.

Thus, effective immediately, shipping breweries such as Houston’s Saint Arnold can sell a set amount of beer directly to customers, although they must consume it on-site.

And brewpubs like San Antonio’s Freetail can package and sell some of their products for distribution in other retail outlets. The latter change gives Texas restaurants that make their own beer the same ability to sell off-site as many out-of-state brewpubs.

“This is a great moment for craft brewers in Texas,” Saint Arnold founder Brock Wagner said. “It’s the first real reform we’ve seen in beer law, for craft brewers, since the brewpub bill.” He referred to the 1993 legislation that authorized licensed restaurants to make and sell beer for sale on-site.

The Texas Craft Brewers Guild hailed the signings as a “progressive step forward in making Texas the epicenter of craft beer development and growth” and predicted the law changes will mean not just more beer on store shelves but also “more jobs for Texans, increased tourism and greater tax revenue for the state.”

In Houston, the law allowing on-site consumption at shipping breweries would have the biggest immediate potential impact. Saint Arnold, for example, plans to begin offering “special and limited edition brews” for sale during its weekday and Saturday tours.

The basic tour at Saint Arnold’s won’t change – they’re not going to fool around with something that’s been such a success for them. Saint Arnold may start adding other events at which beer will be sold. I suspect there will be a lot of experimenting, and that’s just fine. The brewers and the brewpubs have been given a lot of new latitude, and it will take them awhile to figure out how best to take advantage of it for themselves.

Saint Arnold is the biggest player in the microbrewery space around here, but there are plenty of others now. One of them is Karbach, which hasn’t decided yet what it will do now that it can sell beer on premise. Karbach has been growing like gangbusters lately, so the new freedom they’ve been given comes at a great time for them.

Karbach Brewing Co., one of the nation’s fastest-growing craft breweries, has signed a distribution deal that will significantly expand its availability in stores, bars and restaurants from Beaumont to Galveston to Victoria.

In a separate deal, the Houston brewery also will begin selling beer in San Antonio next month, co-founder Ken Goodman said Wednesday.

To meet the anticipated demand, Karbach is completing a major expansion of its northwest Houston plant that will give it capacity to produce and sell up to 40,000 barrels annually, up from 15,000 barrels.

Karbach, which began sales in August 2011, produced more than 8,000 barrels in 2012, well ahead of internal forecasts. Goodman said he expects to sell 18,000 to 20,000 barrels this year.

That will include new sales in 17 counties across Southeast Texas through a distribution arrangement announced Wednesday with Del Papa Distributing Co.

Karbach had been delivering some beers on its own in a limited area, but the Del Papa deal will put year-round and special-release beers in a wider variety of stores and bars.

According to some research done by The New Yorker, based on newly released 2012 data gathered by the Brewers Association, Karbach was the second-fastest growing brewery in the country from 2011 to 2012, with sales increasing by a phenomenal 1112% over that year. You have to start at a pretty low level to grow tenfold, but still, that’s impressive. Overall, craft brewery production increased by 14% in the state, though the total volume of over 770,000 barrels is still peanuts compared to what an Anheuser Busch produces in a year. One reason why there’s been such growth is because there’s plenty of room for it. Texas is only 41st in the country in craft breweries per capita. A whole lot more of these places could open before the market even approaches saturation.

One more thing:

The brewers guild released new figures Friday showing that craft beer production in Texas was up 42 percent last year compared with 2011. It estimated the industry’s economic impact in the state was $737 million in 2012.

“Texas craft beer now accounts for an estimated 0.98 percent of all beer consumed in Texas, but it employs 59.7 percent of the people who work in breweries in the state,” it said.

The Texas Senate voted Monday to give craft brewers and brewpubs new opportunities to sell their beer.

“To see that happen was amazing,” said Scott Metzger, a San Antonio brewpub owner who worked with other brewers, legislators and wholesalers in negotiating a compromise.

Brock Wagner, owner of Houston’s Saint Arnold Brewing, called it a critical step toward passage of the state’s most significant beer-related legislation in 20 years.

“We still have a path to follow,” he said.

Metzger watched via his office computer at Freetail Brewing as the Senate voted 31-0 to approve two bills promoted by the Texas Craft Brewers Guild. An economic impact study Metzger prepared for the guild predicts the measures will spark even stronger growth for the state’s burgeoning craft beer industry.

[…]

Rick Donley, president of the Beer Alliance of Texas distributors group, which supported SB 515 and 518 from the beginning, called it “a good day for the craft-brewing industry,” including manufacturers and wholesalers.

As Metzger noted, SBs 516 and 517 were not taken up because the Senate can only vote on so many bills on a single day at this point in the session. They were subsequently passed unanimously on Wednesday. SB639, the Carona bill, was also approved after some modifications were made that settled most of the objections to it. All bills now await hearings in the House, and signs look good for passage. Put some beer in the fridge in anticipation of it finally happening.

Legislation authorizing the most significant changes in 20 years to the way beer is bought and sold in Texas passed a key Senate committee Tuesday with broad support.

Under terms of the bills, Houston’s Saint Arnold and other Texas craft breweries could sell a limited amount of beer on site and brewpubs like San Antonio’s Freetail Brewing could package some of their product for sale in stores, bars and restaurants.

The breweries, meanwhile, would be prohibited from accepting cash payments for the rights to distribute their beer in specific geographic regions, but they would be allowed to continue to share marketing and some other costs with their distributors.

“It’s an exciting day,” said Scott Metzger, the owner of Freetail Brewing, who has been negotiating on behalf of the Texas Craft Brewers Guild. “ … We have a path ahead of us.”

Final terms of the bills – four of which were developed after yearlong negotiations between brewers, lawmakers and distributor and consumer groups – were hammered out under a tight deadline set last week by the chairman of the Senate Committee on Business & Commerce, who introduced a competing bill and ordered the two sides to reach a compromise.

The committee approved all five amended bills unanimously Tuesday and sent them to the local calendar committee for expedited scheduling before the full Senate. Metzger said a signed agreement among stakeholders with an interest in the bills should expedite companion bills in the House.

Metzger and Brock Wagner of the Saint Arnold brewery both expressed positive thoughts on this, while spokespeople for the Beer Alliance of Texas and the Wholesale Beer Distributors of Texas, who had played the role of villain prior to this, both basically said everyone got some of what they wanted and no one got everything. In its summary of the legislation, Open The Taps says that “at least a few craft brewers are not pleased with the limitation on selling their brand territorial distribution rights”, which is an aspect of the Carona bill that had been criticized by everyone except the Wholesale Beer Distributors. My feelings on this are in line with Open the Taps, which writes in its analysis of the bills:

This is by no means a perfect package of regulatory changes, but again it is a good step. Things happen incrementally in legislative bodies, and we will be back next session if necessary to continue the fight to OPEN THE TAPS in Texas.

We still have a few points on our wish list to accomplish, and we are looking for ways to implement those points, but this may be the most we can get at this time and we will consider it more progress than has been made since 1993 when brew pubs were first allowed in Texas, post-prohibition.

See also Scott Metzger’s analysis of the bills and the process that led to the package that emerged from committee. This is tangible progress and a big deal in its own right, but hardly the end of the line. Now let’s get this across the finish line, and we can see where to go next from there. Good job, y’all.

A: Mostly through the acquisition route. They know the milliennials are drinking craft, and the margins are good with craft beer. The majority of craft beer drinkers either don’t know or don’t care if the label is owned by MillerCoors or Anheuser-Busch. A lot of these craft breweries don’t have succession plans, and they’d be open to selling to a big company.

As we know, one strategy the major breweries have adopted is to create brands that imitate craft-brewed beers. I’ll be honest, I’d have a hard time with it if my favorite craft beer were to be acquired by one of the mega-brewers. For one thing, I would not trust the big boys to maintain the quality of any craft brew they’d acquire. I mean, in any other industry, how often does a small startup retain its defining qualities when it gets bought out by a bigger competitor? Generally speaking, the idea is to “integrate” the newcomer into the brand of the buyer, which is to say make it more like what the big company does. I don’t see how that could be a good thing. Second, while I’m not a fanatic about “buy local”, all things being equal I’d rather spend my money on a company that’s based here and that invests here. Finally, to the extent that brand identity matters, I’d rather identify and be identified with something small and independent than something big and corporate. Obviously, your mileage may vary. I fully expect that there will be some consolidation in the beer industry – the big brewers can see what the trends are, and they like making money – but I can’t say I’m looking forward to it.

On a side note, Scott Metzger of Freetail Brewing is busy posting again. See his thoughts on the start of the session and of the Alcohol Working Groups hosted by Sens. John Carona and Leticia Van de Putte that have been going on for several months. He’s sounding optimistic about the way things are going for microbewers, which is good to hear. Check it out.

Scott Metzger of Freetail Brewing has an update on what he and his craft-brewing colleagues have been working on.

Brock Wagner (of Saint Arnold of course) and I have been Co-Chairing the Texas Craft Brewers Guild Legislative Committee and have come a long way. There is still a ton of work to do, and nothing is certain, but I feel better about our chances than ever before. For the first time this issue is being tackled from the perspective of economic development and helping Texas-born businesses flourish. From that angle, there is really no denying that changes must be made to grant Texas craft brewers greater access to market.

The Texas Craft Brewers Guild has released this position paper laying out our legislative agenda. Specifically, we have four goals (all equal in importance):

Gain the ability for packaging breweries to sell their products to consumers on the premise of their breweries

Gain the ability for brewpubs to sell to the wholesale tier

Protect small brewer’s existing rights to self-distribute

Achieve these goals while protecting the integrity and viability of the 3-tier system

As I wrote here last November, protecting a viable, independent 3-tier system is vital for the health of the craft brewing industry. Without independent wholesalers, craft beer would never see the light of the shelves or taps we’d be stuck in a world without the wide variety of choices we enjoy today.

See here for more about their economic impact study. I’m less sanguine about the three-tier system than they are, but if they’ve found a way to overcome the resistance to any change while living within that system and not making it any harder for further newcomers to the industry, then who am I to complain? I wish them all the best of luck next year.

Craft brewing in Texas could add 52,000 jobs and mushroom into a $5.6 billion industry by 2020 if state lawmakers next year ease restrictions on breweries and restaurants that make beer on-site, a study prepared by the brewers claims.

That compares with the estimated $608 million economic impact that smaller, independently owned craft breweries made in 2011, according to the analysis made public Monday by the Texas Craft Brewers Guild.

“If you get a really vibrant industry going, with all the multiplier effects, to me it’s not unrealistic,” Brock Wagner, who founded Houston’s Saint Arnold Brewing Co. in 1994, said of the projected growth.

Wagner and other Brewers Guild members have already begun meeting with legislators and wholesaler groups ahead of the 2013 legislative session.

They are pushing for changes to the state alcohol code that would allow shipping breweries like Saint Arnold – which sell their product to wholesalers, who distribute it in turn to stores, bars and restaurants – to offer a limited amount of beer directly to consumers and allow brewpubs to package some of their beer for off-site retail sales they way they do in states with strong brewing industries.

Wagner said the changes would encourage more Texans to open breweries and help startups and established breweries alike by providing additional revenue that can be used to expand marketing efforts and reach new beer drinkers.

“Changing the laws will make many of these businesses much more viable,” he added. “If the law changes, we will change our staffing overnight – literally, add another 50 percent.”

We are well familiar with the microbrewers’ efforts to get the Lege to update its archaic and obsolete laws regarding beer distribution. I of course hope that the fourth time is the charm. I don’t recall them making an explicit economic argument for their case in years past; certainly, they appealed to basic free market principles, which the beer distribution duopoly most certainly is not, but I don’t recall jobs being part of the pitch. Of course, they didn’t have these numbers before now. Here’s more on that.

The Texas craft beer industry is having measurable positive economic impact on local and regional economies throughout the state to the tune of $608 million, according to the Economic Impact of the Texas Craft Brewing Industry study released today by the Texas Craft Brewers Guild. Texas craft brewers are also creating jobs, accounting for 51.2 percent of all the state’s brewery jobs, a remarkable figure given only 0.7% of the beer consumed in the state comes from Texas craft brewers.

The study, authored by University of Texas-San Antonio Economics Professor Scott Metzger, founder and CEO of San Antonio-based Freetail Brewing Co., also models how the economic impact of the Texas craft beer industry could reach $5.6 billion annually in just eight years.

“$5.6 billion sounds astounding, but given what’s happening across the country with craft beer, it’s not. It’s actually conservative,” Metzger says, calling the 2011 figure “the tip of the iceberg.”

“Given consumer demand and planned increases in capacity, a tremendous opportunity exists for ongoing and future growth — provided legislation may be passed allowing Texas’ craft brewers the same access to market enjoyed by brewers in other states and by the Texas wine industry,” Metzger says.

“In other states, brewers can sell their packaged goods directly to consumers through tasting rooms. In other states, brewpubs can sell their beer off premises, at festivals, for instance, and as packaged goods in retail stores, not just at their brewpub location,” explains Metzger.

“These sales opportunities other brewers benefit and grow from are lost for Texas craft brewers — and they add up.”

I have not had the chance to pore through these reports in detail yet. I suspect there may be a bit of puffery in there, as is often the case with studies like these, but the thing about a small population is that it doesn’t take much for it to have rapid and sizable growth. Further, the vast majority of microbreweries are startups, and as the CBPP points out, that’s where the job creation action is.

There is an emerging consensus among economists that young small firms — not small firms in general — are particularly important “job creators.” A 2010 study finds no systematic relationship between firm size and job growth, after controlling for firms’ age.[22] It thus is important to distinguish between startup businesses, which the study finds “contribute substantially to both gross and net job creation” (as well as to gross job destruction when they fail, as many startups do), and other small businesses, which on average generate no more net job growth than do larger businesses.[23]

Similarly, as CRS notes, recent research “suggests that small businesses contribute only slightly more jobs than other firms relative to their employment share. Moreover, this differential is not due to hiring by existing small firms, but rather to startups, which tend to be small.”[24]

So there you have it. Do your part for job creation in Texas and pick up a sixpack or two of your favorite microbrew. It’s the right thing to do.

Distributors Start to Play Nice. In many states, there has long been an uneasy relationship between brewers and distributors, especially in the legislative arena where distributors feel empowering breweries puts their place in the 3-tier system at risk. I see 2012 as the year distributors in lagging states “see the light” and drop their opposition to legislative changes that would help small brands. Operationally, I predict increased pressure from InBev on its distributors to focus on their brands and wouldn’t discount the possibility of threats on those distributors if they don’t focus on InBev’s portfolio. Even so, I see craft beer & brand promiscuity accounting for an increasing percentage of wholesalers’ portfolios.

Texas Will Change in 2013, and We’ll Know About it in 2012. Before the end of the year, craft brewers, distributors, retailers, consumers & lawmakers will have agreed upon legislation that allows production brewers to sell directly to consumers on the brewery premise and for brewpubs to sell their beer to distributors for resale. Texas will be free from the shackles of the past… which leads me to:

BONUS 2013 PREDICTION: Texas experiences a craft beer Renaissance. Some of you may already think we are there, with all the new brewers popping up around the state… but by the end of 2013, you’ll look back and realize that we hadn’t seen anything yet.

I sure hope he’s right about all that. It’s way past time for microbrewers to get a fair shake from the Lege. Go read the rest and see what you think. For a more local take on what went down in the brew business, see Beer, TX.

Having previously announced expansion into the Houston market, Freetail Brewing Co. will announce the indefinite suspension of plans for a second location — citing concerns over access to capital.

“As I moved forward with the Freetail Houston project, I began to run into an increasing level of resistance in capital markets. A brewpub is a good project for downtown Houston, but the deal is simply not there for me at this time,” explained Freetail Founder & CEO, Scott Metzger. “When we announced the project on May 17, we also stated there were financial considerations to be addressed. Those considerations are ultimately what put this project on hold indefinitely, and no other reason. To move forward with the project at this time would be irresponsible and an injustice to my company and the City of Houston.

“For now my focus will be to continue growing our successful original location, which has internal expansion needs of its own, and moving forward in the battle for fair reform of the Texas Alcoholic Beverage Code, as it relates to the activities of our state’s brewpubs and breweries,” added Metzger.

Houston officials had worked closely with Metzger and the owner of the downtown property and felt Freetail was “a fantastic fit for us,” said Angie Bertinot, spokeswoman for the Houston Downtown Management District.

“We’re incredibly disappointed, without a doubt,” she said. “This is something the district really went after.”

She said the district had asked Metzger to consider extending his self-imposed deadline of last Friday. Officials had hoped he would keep trying to raise money until closer to the mid-August date set in the letter of intent signed back in May. “But,” Bertinot added, “we can’t go raise money for him, obviously.”

[…]

The brewer said he still believes Houston is a viable location, but he realized he did not have enough contacts among potential investors. He also said continuing economic uncertainties may have investors leery.

“If things change, then we want to revisit Houston,” he said.

“Economic uncertainties”? I blame Eric Cantor. Freetail had announced their intent to open a Houston location in May. I hope they are able to get the funding they need to try again soon.

Eric Warner was at the well-regarded Flying Dog Brewery in Colorado for a decade, as brewmaster and then as chief executive. While there, the brewery came out with such beers as Snake Dog IPA, Double Dog double pale ale, Gonzo Imperial Porter and Dogtoberfest Märzen.

By the time Flying Dog moved production to Maryland and Warner left the company in 2008, Flying Dog was a national brand with annual production of 50,000 barrels, up from 10,000 when he started.

Now the 47-year-old is bringing his talent, a quarter-century’s brewing experience and his interest in startups to Houston.

Karbach Brewing Co. has brewing equipment on site, in a warehouse under renovation in the same U.S. 290/Loop 610 West part of town where Saint Arnold started.

Warner said the company will have more than $1 million invested in the brewery by the time it begins operations in late July or August.

“Hopefully, people can take a couple of six-packs of Karbach beer to the Thanksgiving table,” Warner said one recent morning, while making a test batch of “Weisse Versa” wheat beer that will be among three year-round offerings.

After months of professional evaluation and fan speculation, Freetail Brewing Co. is happy to announce it has chosen downtown Houston as the site of its second location.

On November 2, 2010, Freetail Founder & CEO Scott Metzger announced the company’s search for a second location. After extensive research and analysis, bolstered by a robust social media campaign by thirty Houstonians, Metzger ultimately decided on approximately 20,000 square feet in a historic building in downtown Houston. Out of respect to the developer, the exact location cannot be named at this time.

“When I started this company I would never have envisioned a Houston location,” said Metzger. “But through the diligent efforts of The Downtown District and the city’s vocal craft beer fans, I’ve begun to fall in love with the city and I am looking forward to many beers there.”

The new location, described as a “flagship” design, spans three floors and includes a company store for customers to buy packaged product, growlers and merchandise in addition to ample restaurant and bar space. Unlike Freetail’s original location, which is primarily one big room with a patio overlooking the Texas hill country, Freetail Houston will feature traditional restaurant seating, private dining space, and a “game room” with pool tables, shuffleboard, darts and numerous televisions.

Houston Mayor Annise Parker hailed the announcement as part of her effort to grow downtown’s appeal. “The development of downtown Houston is important to my administration,” said Parker. “We recognize that building a critical mass of retail is needed for existing and future downtown residents, as well as building an attractive visitor and tourist market. Freetail Brewing Co. will be a welcome addition to the existing mix of eclectic and one-of-a-kind restaurants and watering holes already there.”

The Mayor’s sentiments were echoed by Bob Eury, Executive Director of the Downtown District. “As part of our retail efforts, we specifically targeted Freetail Brewing Co. as a great fit for downtown,” said Eury. “They will create positive synergy with other downtown retailers and when you add a brewpub to our list of newcomers, we are really starting to move the needle in regards to making downtown a thriving, livable community.”

It wasn’t without hesitation that Freetail decided to open a second location 200-miles from their homebase, but Metzger said Houston’s beer culture played a huge role. “A lot of folks talk about the trail of failed brewpubs that litters Houston’s past, but I don’t think a brewpub is something that can’t thrive here. I look at the amazing following that St. Arnold has built over its incredible lifespan and see what’s possible.” The Freetail CEO also added that a grass roots social media campaign played a huge part in the decision. “Organizations like Girls Pint Out, the Foam Rangers, the Bay Area Mashtronauts and Houston beer enthusiasts share a lot of the credit for this decision. They took to Twitter and Facebook and made an effort to show how much they wanted Freetail, and I heard that message loud and clear.”

St. Arnold’s Brock Wagner shared Metzger’s sentiments that Houston is ready for a brewpub. “Houston has a thriving beer scene but oddly no brewpubs. I have told many people that if I could, I would love to open a brewpub here. People will quickly embrace a brewpub downtown and one already known to brew great beers. The success of such a place will dispel the view that there is a brewpub curse in Houston,” said Wagner.

Metzger, who was part of the failed legislative effort to allow brewpubs to sell their products to distributors, added that the facility will be designed with the size and flexibility to eventually accommodate sales to wholesalers. “HB 660 may not have passed the legislature in 2011, but we will be back and reason shall eventually prevail.”

Metzger also noted that while an executed Letter of Intent was in place, some fundraising work remains to be completed before Freetail Houston is a done deal. “We have a significant portion of the financing completed, but need to wrap up the rest within 90 days for this project to move forward. I’m confident that will not be an issue.”

The $4.2 million facility is projected to open in Spring 2012 and create 100 new jobs.

I’m delighted to hear this news and look forward to patronizing the new place. Now no matter what happens with HB602 it’s been a good year for beer in Houston, and who knows, maybe it’ll give a little momentum for the next legislative session when the brewpubs can try again. Beer, TX has more.

Craft beer brewers came to the Capitol this session with a number of bills giving them greater latitude in getting their beers to customers. [Thursday], the House gave an early OK to one of those bills, allowing breweries to charge admission for tours, and include up to two six-packs of beers to give to tourists at the end.

“Tours of our brewery are the single most important marketing item,” Brock Wagner, founder of Saint Arnold brewery in Houston, told the House committee that took up the bill last month. Other states have that ability, he said, and those breweries and their beers are out-competing Texas beers.

This is HB602 by Rep. Jessica Farrar we’re talking about. It passed the House unanimously and now needs to pass the Senate. Beer, TX has some information on that:

[Rep. Farrar’s] bill now awaits committee assignment in the Senate, where it is being sponsored by State Sen. Wendy Davis, D-Fort Worth.

[…]

Brock Wagner, the Saint Arnold Brewing Co. founder who has pushed for the change as a way to help small brewers market their products more effectively, said his focus now turns to the upper chamber. While pleased with Thursday’s vote, he was not ready to pop the top on a celebratory ale.

“I continue my state of cautious optimism,” he said. “We’re not there yet. It’s certainly a big step in the right direction.”

Sen. Davis’ bill is SB1863; it remains in the Business and Commerce Committee as of today. I should note that Saint Arnold’s already charges for a tour, and in return you get the lovely glass pictured on that page. That’s nice, but perhaps not so useful after a certain number of return trips. If this gets signed by the Governor, I presume Saint Arnold will institute a tiered pricing structure for its tours, thus allowing those who wish to take home a six pack or two to do so. After three sessions of trying to make something like this happen, this is substantial progress.

I wish I could report equally good news for the brewpub bill HB660, but it remains in committee and I daresay it is unlikely to see the light of day this session. Tellingly, the only update on the Brewed And Never Battered blog talks about a couple of other bills that had recent committee hearings, HB2436 by Rep. Eddie Rodriguez, and companion bill SB1575 by Sen. Kirk Watson, which would allow for some direct sales by microbrewers, but neither has received a committee vote yet. Frankly, no matter what happens with any of these bills, I think Scott Metzger did a great job getting the word out and building support for letting brewpubs expand their markets. If HB602 can pass, something like HB660 will eventually pass, too. It may take a few more sessions, but it will happen, and we’ll all be the better off for it.

If you’ve been followingthebrewpubs’efforts to get a bill passed that would allow them to sell their wares elsewhere in Texas then this Statesman story doesn’t bring much new to you. What it does do is cleanly capture the absurdity of the arguments against giving brewpubs and microbreweries greater access to the market in Texas.

The [Wholesale Beer Distributors of Texas] is very protective of the state’s post-Prohibition alcoholic beverage laws, which divide the industry among breweries, distributors and retailers and bar anyone from owning businesses in more than one category.

That means anyone wanting to sell outside of his own premises to consumers has to go through the distributors.

There are minor exceptions, including the legalization of brewpubs in Texas in 1993. Texas regulators consider brewpubs to be retailers, even though they also brew beer.

It’s a tiny industry. In 2009, Texas brewpubs produced 12,755 barrels of beer and grossed $31.9 million in sales, according to a report commissioned by Texas Beer Freedom.

But Mike McKinney, a lobbyist with the Wholesale Beer Distributors, says too many exceptions might invite industry giants to lobby the Legislature to change the system.

“We don’t want Anheuser-Busch to own a chain of grocery stores or nightclubs,” McKinney said.

[…]

Both sides cite the Texas wine market, which allows wineries to sell both to consumers at the vineyards and to wholesalers for distribution in stores, in their arguments about HB 660.

McKinney says the wine market is “chaotic.”

Scott Metzger, an economist who also owns Freetail Brewing Co. in San Antonio, says the number of Texas wineries jumped from 46 to 181 after the Legislature loosened the regulatory restraints.

[…]

The key to passing HB 660 is the House Committee for Licensing and Administrative Procedures, where the bill was pending while both sides lobby behind the scenes.

The chairman, state Rep. Mike “Tuffy” Hamilton, R-Mauriceville , echoes McKinney’s concerns that the bill could “open the door” to unintended consequences.

You mean like something resembling a free market? Oh noes! Whatever will we do? Very simply, the distributors have a nice little setup for themselves that guarantees them eternal profits, and they don’t want that to change in any way. It’s all about them trying to maintain a status quo that serves their interests a lot better than anyone else’s. Brewed and Never Battered has more.

Briefly on HB 602: No one expressed opposition, not even the Wholesale Beer Distributors of Texas, who have opposed the bill in the past. There is some forthcoming compromise on that bill that apparently everyone is happy with and it looks like you’ll be able to take beer home after a brewery tour later this year.

HB 660 had a tremendous number of supporters, and the roll of names read into the record as supporters of the bill was long and impressive. Among those in support but not wishing to testify were a number of beer distributors and the Texas Restaurant Association.

As you may have read, we’ve gained the support of the other tiers through thoughtful discussion with interested stakeholders. Beer distributors were concerned about self-distribution for a business type that already sells directly to the consumer, and we understand their points. Self-distribution has been removed from the bill. We also lowered the annual limit for aggregate production to 15,000 barrels per brewpub. A number we are very comfortable with. I’m pleased that we were able to come up with a bill that all three tiers really like.

We did have one person oppose our bill, however. Keith Strama, representing the Wholesale Beer Distributors of Texas, stood up and presented a semi-coherent rambling about how we should allow these kind of changes to the code because… well, just because. Seriously. Strama did present some other barely comprehensible argument, which was called onto the rug in short order by Committee Vice-chair Chente Quintanilla of El Paso. Video of the entire hearing, which you can find here, proves quite entertaining. Strama should have just stuck to “Uh… just because” – turns out that was a better argument than the one he was trying to make.

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What’s Next.

With the WBDT exposed, the ball is back in our court. We have one or two weeks at the most to earn the votes of the committee, after that it will be too late to advance this session. Right now I think we have 4 votes. We need 5. Time to turn up the pressure and continue to urge members of the committee that this the right thing to do. Continue those calls and emails (I’ll post a sample follow up letter tomorrow).

The link to find committee members is here – you can search for the Licensing & Administrative Procedures committee, or just take my word for it that it contains the following members:

It would be especially helpful for you to express your support for HBs 660 and 602 if one of these folks is your Representative. There clearly is a lot of support for this bill, but until the committee votes it out, that doesn’t mean anything. Lee Nichols has more.

Rep. Mike Villarreal, D-San Antonio, laid out HB660 before the House Licensing and Administrative Procedures Committee today. The measure, in its original form, would’ve allowed brewpubs — restaurants that brew their own beer — to distribute directly to other bars, restaurants and stores. But after a compromise with the Beer Alliance of Texas, the bill would only allow brewpups to sell their bottled wares via a beer distributor.

Villarreal told the committee that brewpubs are already manufacturing beer, and that Texas’ regulatory system is stunting their growth. Brewpubs in other states are allowed to sell to distributors, meaning Texas is losing out on what could be a growing business, Villarreal said.

“If it is putting our playing field at a built-in disadvantage to our brewpubs, versus out-of-state brewpubs, then it needs to change,” said Villarreal.

But opponents of the bill, including the Wholesale Beer Distributors of Texas, say allowing brewpubs to sell to distributors would break down the three-tiered system that regulates the production, distribution and retail sales of beer separately — and which has been around since Prohibition. The system is meant to make it easier to regulate and tax beer sales and keep any one company from gaining a monopoly.

They suggest a round-about alternative: HB602, which would allow breweries to charge admission for tours and include up to two six-packs of beers to give to tourists at the end of the tour. Keith Strama, who represents the Beer Distributors, told the committee if HB602 passes, brewpubs could change their licenses to become manufactures of beer, so that they could sell to distributors, sell during tours, and open a restaurant on the premises.

Rick Donley, president of the Beer Alliance of Texas, told the committee that he is a staunch supporter of the three-tier system, but that after working with Villarreal and the brewpub owners, a compromise was reached. Originally, the bill would have allowed brewpubs to sell a limited amount of their product directly to stores and other restaurants and bars, bypassing the distributors. The amended bill makes the distributors the middle man.

Scott Metzger, a brewpub owner and executive director of Texas Beer Freedom, said he’s pleased with the compromise. Being able to sell his beer to a distributor will help him grow his business, Metzger told the committee, but would also help grow the state’s economy and its tax revenue. Metzger, who is also an economics professor at the University of Texas at San Antonio, told the committee the bill has the potential to create $680 million a year in economic activity, 6800 new jobs at brewpubs and $57 million in new tax revenue per year.

Personally, I’d prefer to see the three-tier system thrown onto the ash heap of history, but if Scott Metzger is happy with this compromise, then so am I. If what they say about HB602 is true and it gets passed, it’ll be a huge step forward. I’m genuinely optimistic about their chances now. Kudos to Metzger, Rep. Villarreal, Rep. Jessica Farrar (the author of HB602), and everyone else involved in brokering this deal. Now let’s get this bill passed so we can all enjoy the benefits of it.

Elsewhere in alcohol-related news, two other bills moved along, though neither are bills I’d been following.

The first will require liquor stores to begin reporting the final sales destination of booze they sell — and could boost state revenues as much as $25.8 million — was approved this morning by the Texas Senate.

State Sen. Kevin Eltife, R-Tyler, the author, said that under current law, the stores do not have to report the final destination of liquor sales like they do for beer, wine and malt liquor.

“This changes the reports filed with the Comptroller, and is expected to increase tax revenue to the state,” Eltife said, noting that the improved tracking of sales is expected to improve auditing and tax collection.

The second bill, by Sen. Craig Estes, R-Wichita Falls, will increase the limit for Texas winery off-premise tasting room sales from 35,000 gallons to 50,000 gallons. More wine sold will mean more revenues for the state, officials said.

Estes said that the increase is expected to allow the wine industry to continue growing at its current rate. Between 2007 and 2009, the economic impact of the Texas wine industry grew from $1.35 billion to $1.7 billion annually.

The bills in question are SB576 and SB411. With the news about HB602, I’d say it’s been a good day for Texas beer and wine lovers.

The last bill of alcohol-related interest is SB595, which is a bill to allow Sunday liquor sales, and on which there has been no further action. There’s still time in the session for it, but as Yogi Berra once said, it gets late early out there. I’m not nearly as optimistic about this bill’s chances.

State Rep. Jessica Farrar, D-Houston, has introduced House Bill 602, which would allow breweries to distribute up to 48 12-ounce beers at the conclusion of tours of the respective facilities. Brewers would cover the cost of the beer by charging varying tour admission fees. The net effect would be that tourists could take some of the product home with them, just as visitors to Texas wineries can do under existing law.

HB 602 is very similar to a bill Farrar carried during the 2009 session that made it out of committee but was buried in Calendars. Traditionally, the Texas beer wholesalers have opposed anything seen as challenging the three-tier system that gives distributors exclusive rights to sell beer to retail outlets.

Also sent to the Licensing & Administrative Procedures Committee is House Bill 660, sponsored by state Rep. Mike Villarreal, D-San Antonio. It would allow brewpubs – that is, restaurants that make and sell beer on premises only – to increase the amount of beer they produce and to sell some of that beer off-site through distributors.

It’s a journey of a thousand miles, and there’s a million ways to go off the trail and into the weeds, but you have to start somewhere. As always, if you support these bills, now would be a good time to let your Rep and your Senator know that. The AusChron has more.

I’ve written before about the efforts by brewpubs to pass a bill that would allow them to distribute their product outside their own doors. That effort is being led by Scott Metzger of San Antonio’s Freetail Brewing Company, who has been promoting it via blog, Facebook, a new nonprofit called Texas Beer Freedom and pretty much anything else he can think of. The Trib wrote a story about this and about those who are opposed to it.

Under state law, brewpubs can make and sell their beers only on site; they are not allowed to distribute their products themselves or through a separate wholesaler. Only breweries that do not sell their own products on site may distribute their beer through wholesalers. House Bill 660, filed by Representative Mike Villarreal, Democrat of San Antonio, would give them the green light to increase production, sell to beer distributors and sell directly to stores and restaurants if they produce 10,000 barrels of beer a year — the equivalent of 20,000 kegs — or less.

But major beer distributors do not want to open those spigots. Their lobbyists argue that allowing brewpubs to sell their own wares would destroy the regulatory system in Texas that has operated, effectively and profitably, since the end of Prohibition. Rick Donley, president of the Beer Alliance of Texas, which lobbies for companies that distribute major-brand beer and some craft brews, said the three-tiered system — which regulates the production, distribution and retail sales of beer separately — made the beer business easier to regulate and tax, and keeps any one business from creating a monopoly.

Because brewpubs are not currently regulated in the same way as distributors, Donley said he worries that their products could be shipped to dry counties or to minors. “This regulatory system has worked well since Prohibition,” Donley said. “Why anybody wants to disrupt it is a question I can never quite get an answer to.”

It has worked well for the major beer producers. The top five brands in Texas, according to the state Alcoholic Beverage Commission, are Bud Light, Miller Lite, Budweiser, Coors Light and Natural Light.

The brewpub supporters point that the legislation would make brewpubs that produce up to 10,000 barrels a year and sell directly to restaurants and stores subject to the same requirements as wholesalers and distributors

“At the end of the day, it’s just about they don’t want increased competition and how that affects their personal wealth,” Metzger said.

I have no idea why Rick Donley thinks HB660 would lead to anarchy in the distribution process. The current regulatory scheme has indeed been a boon for the beer distributors and their large clients, but speaking as a consumer who might like to buy a six-pack of Freetail’s finest at my neighborhood supermarket some day, it has most certainly not been good for everyone. We don’t have a free market for beer in Texas, and the distributors are perfectly happy with that. Why our supposedly free-market-loving Legislature is also happy with this, I couldn’t tell you.

The owner of one of San Antonio’s largest brewpubs, Freetail Brewing Co., is spearheading an effort to change state law to allow it and other brewpubs to distribute their beer anywhere in Texas.

If successful, beer aficionados no longer would need to travel to San Antonio to sip on Blue Star beverages, or to Austin for Uncle Billy’s or Dallas for Gordon Biersch. The brewpubs would be able to self-distribute up to 10,000 barrels of their brew per year or sell it to licensed distributors.

And under the proposed legislation, brewpubs could increase their total production from the existing limit of 5,000 barrels per year to 75,000 barrels.

If you’ve read this blog for any length of time, you know that I’m a fan of Saint Arnold beer and of microbreweries in general, and I’ve been a supporter of legislation to give them more freedom to sell their product. Past legislative efforts to allow microbreweries to sell their wares at their base of operations, which is something that Texas wineries have been able to do for some years now, have fallen short. The microbreweries are trying again, but theirs is a separate effort, as noted in that Beer, TX post:

Our own Jessica Farrar, D-Houston, has indeed introduced a bill that would let brewers distribute a limited amount of beer directly to consumers. HB 602 would allow Texas breweries to charge for tours and then give tour participants up to 48 12-ounce beers at the conclusion.

By charging varying amounts, depending on how much beer a tourist wanted to receive, consumers could get the beer they want while maintaining the status quo for the state’s powerful distributors. According to the wording of Farrar’s bill:

This section does not authorize the holder of a brewer’s permit to sell ale to an ultimate consumer.

So instead of allowing people to buy a case of beer after touring the brewery, you can offer differently-priced tours that may or may not include a free case or two of the product to take home with you afterward. If you’re thinking that’s a subtle change from the previous bills, you’re correct. If you’re wondering why such a subtle change would make this bill more likely to pass, all I can say is welcome to the world of sausage-making.

Anyway. Freetail owner Scott Metzger has started a blog to document his journey through this process, and he describes the differences between HBs 660 and 602 in this post, summing up as follows:

Obviously, I support HB 660. I also believe that the activities that would be permitted by HB 602 should be legal. If a brewery wants to give you a couple of cases of beer, I believe they should be allowed to. It should be noted, however, that HB 602 has a very narrow focus that affects only a handful of breweries: A-B in Houston, MillerCoors in Ft. Worth, Spoetzel in Shiner, St. Arnold in Houston, Real Ale in Blanco, Rahr in Ft. Worth, and Independence in Austin (in other words, only the breweries that package beer in 12-ounce bottles).

I support this bill and the efforts of the breweries who would be helped by its passage. I would however, point to HB 660 as a more comprehensive piece of reform legislation that has a greater reach. And with the exception of A-B, MillerCoors and Shiner who all exceed HB 660′s size restriction, the Brewpub bill allows the activities that HB 602 seeks to allow, should a brewery decide to change to a brewpub license. A brewpub is legally allowed to sell you packaged product for off-premise consumption, so long as they have packaged product to sell (most don’t).

You will never find me campaigning against HB 602, as I think it’s a bill that should pass. However, I believe our state is in need of greater reform that benefits our craft beer industry.

I was curious about what the microbrewery perspective was on HB 660, so I placed a call to Saint Arnold’s and had a chat with Brock Wagner. He told me they’re focused on their own efforts and that he wishes Metzger and his supporters the best of luck. As do I, to all of them. There’s a Facebook page for HB 660 to like if you’re into that sort of thing. You know I’ll be keeping an eye on this.